When separate vendors each do part of an oil and gas well workover, is each vendor's job taxed on its own, or based on the overall well-servicing job?

Subject

Well Servicing Jobs Performed By Separate Vendors — Taxability Follows The Overall Job, Not Each Vendor's Piece

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9310169L

Plain-English Summary

This letter answers a specific follow-up question: after an earlier Comptroller's Hearing Decision (No. 28,608) suggested that the taxability of oilfield services provided by separate vendors should be judged individually — service by service — rather than by looking at the overall job, would the Comptroller actually adopt that approach going forward?

The requestor's own letter lays out the background. In Hearing No. 28,608, the Comptroller had relied on an earlier decision, Hearing No. 27,968, "for the proposition that the taxability of oilfield services provided by separate vendors should be determined individually, rather than in the context of the overall job being performed." A March 11, 1993 letter had indicated the Comptroller's office intended to follow Hearing No. 28,608, and a June 30, 1993 letter reiterated a position that "the taxability of a particular service is determined by the purpose or objective of the service itself" and not by "the purpose of the overall services performed by all companies involved in a workover." The requestor asked the Comptroller to clarify its current position and confirm whether taxability would be judged by the purpose of the specific service performed, or by the overall purpose of the job.

The Comptroller's response reverses course from that trajectory. It states plainly: "earlier this year it was thought that the decision would be followed. Since then, it has been decided that the existing rule regarding oil well services will not be amended." As a result, "taxability of a particular services will be determined within the context of the overall service. If a job was basically a well servicing job, individual portions of the job that would otherwise be subject to sales tax will be considered non-taxable." In other words, rather than taxing each vendor's slice of a workover on its own terms, the Comptroller will look at what the overall job actually was — and if that overall job was a well servicing job, portions of it performed by separate vendors that would otherwise be taxable services are treated as non-taxable because they're part of that larger job.

The letter also flags that this is a policy position, not a permanent rule change: "This position may change in the future. If it does, you will be given notice of the change in an amendment to the existing rule."

What This Means For You

If you provide services as part of an oil or gas well workover: This letter indicates the Comptroller evaluates the tax treatment of your piece of the work by reference to the overall well servicing job it's part of, not by isolating your specific service in a vacuum. If the overall job was a well servicing job, portions that might otherwise look like standalone taxable services can be treated as non-taxable as part of that job.

If multiple vendors work on the same well job: The letter's holding applies even though "separate vendors" are involved — the overall-job analysis isn't limited to a single company doing all the work. The requestor's underlying concern (from the original letter) was specifically about services "provided by separate vendors," and the Comptroller's answer addresses that scenario directly.

Watch for future rule changes: The Comptroller expressly warned that "this position may change in the future" and that any change would come "in an amendment to the existing rule." Businesses relying on this letter should check whether the underlying rule on oil well services has since been amended.

This letter does not name a specific Tax Code section or Rule number. It references "the existing rule regarding oil well services" and prior Comptroller's Hearing Decisions (No. 28,608 and No. 27,968) without citing them by Tax Code or Administrative Code number, so no statutes are listed in this record beyond what the letter itself names.

Q&A

Q: Will the Comptroller follow Hearing No. 28,608's approach of taxing each vendor's service individually?
A: No. The letter states the existing rule regarding oil well services "will not be amended," and taxability "will be determined within the context of the overall service" rather than individually.

Q: If a job is basically a well servicing job, are the individual portions performed by separate vendors taxable?
A: According to the letter, "individual portions of the job that would otherwise be subject to sales tax will be considered non-taxable" when the overall job was basically a well servicing job.

Q: What had Hearing No. 28,608 said about taxability, according to the requestor's letter?
A: The requestor's letter states that in Hearing No. 28,608, the Comptroller relied on Hearing Decision No. 27,968 "for the proposition that the taxability of oilfield services provided by separate vendors should be determined individually, rather than in the context of the overall job being performed."

Q: Is this position permanent?
A: No. The Comptroller's letter says "this position may change in the future," and that any change would be communicated "in an amendment to the existing rule."

Q: Does this letter cite a specific Tax Code section or Administrative Code rule number?
A: No. It refers generally to "the existing rule regarding oil well services" and to Comptroller's Hearing Nos. 28,608 and 27,968, without giving a specific statute or rule citation.

Original ruling text

October 19, 1993

Dear **:

In your letter of October 14, 1993, you asked if the Comptroller was going to
follow Comptroller's Hearing No. 28,608 regarding the taxability of oil and gas
well services. As you know, earlier this year it was thought that the decision
would be followed. Since then, it has been decided that the existing rule
regarding oil well services will not be amended.

Therefore, taxability of a particular services will be determined within the
context of the overall service. If a job was basically a well servicing job,
individual portions of the job that would otherwise be subject to sales tax
will be considered non-taxable.

This position may change in the future. If it does, you will be given notice of
the change in an amendment to the existing rule. Should you have any further
questions, please feel free to call me at 1-800-531-5441, extension 3-4004.

Sincerely,

Wade Anderson
Assistant Director
Tax Administration

October 14, 1993

Mr. Wade Anderson
Assistant Director
Tax Administration
Comptroller of Public Accounts
LBJ State Office Building
Austin, Texas 78774

Dear Mr. Anderson:

Please accept this letter as a request for a ruling from the Comptroller of
Public Accounts of the State of Texas regarding the effect of Comptroller's
Hearing No. 28,608. In that hearing, the Comptroller relied upon Comptroller's
Hearing Decision No. 27,968 for the proposition that the taxability of
oilfield services provided by separate vendors should be determined
individually, rather than in the context of the overall job being performed.
Subsequent to Hearing No. 28,608, you issued a letter, dated March 11, 1993
(copy enclosed), indicating that the Comptroller's office intended to follow
Hearing No. 28,608. In addition, you also indicated that the rule had not yet
been amended to reflect Hearing No. 28,608 because you expected that the oil
well servicing tax would be substantially amended during the regular session.
That sentiment was again echoed in a June 30, 1993 letter by Tom Soto (copy
enclosed) which reiterated the Comptroller's position that the taxability of a
particular service is determined by the purpose or objective of the service
itself and taxability is not determined by the purpose of the overall services
performed by all companies involved in a workover.

Based on the above, please advise us as to the Comptroller's current position
with regard to Hearing No. 28,608 and the effect it has on the taxability of a
particular oil and gas well service. More specifically, please advise whether
the application of the Texas sales and use tax will be determined by the
purpose or objective of the specific services performed or whether taxation
will be determined by the overall purpose of the job.

If you should have any questions or require any additional information
regarding this matter, please do not hesitate to contact me. Your prompt and
courteous attention to this matter is greatly appreciated.

Very truly yours,